Transcript: Nightly Business Report – September 26, 2017

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue
Herera.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Pulling the plug. Republicans
decide not to hold a vote this week on a measure to repeal the Affordable
Care Act. And health stocks rise.

Sports scandal. The multiple billion dollar college sports industry is
rocked by an alleged bribery scheme, highlighting the big money behind
college athletics.

Robot revolution. Machines are playing a bigger role in investing your
money. But is that a good thing?

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday,
September 26th.

Good evening, everyone. I`m Sue Herera. Tyler Mathisen is on assignment
tonight.

We begin in Washington where there will be no vote on the Republican effort
to overhaul the health care system. Majority Leader Mitch McConnell met
with lawmakers today after Senator Collins late yesterday said that she
could not support the Graham/Cassidy bill. The decision not to take the
measure to the floor this week was because the votes simply were not there.

Now, Senator McConnell says the Republican Party is moving on.

(BEGIN VIDEO CLIP)

SEN. MITCH MCCONNELL (R-KY), MAJORITY LEADER: Where we go from here is tax
reform. Senator Corker and Senator Toomey have reached an agreement on the
parameters of the budget resolution. The budget committee will be marking
up next week. And we plan to move forward on our next priority, which is
reforming the American tax code in a significant way for the first time in
30 years.

(END VIDEO CLIP)

HERERA: After that vote was scrapped, shares of the health insurance
stocks rose. And hospital operators also gained on the day.

Nike`s shares were also on the move. The world`s largest sportswear brand
reported a nearly 24 percent drop in quarterly profit after heavy
discounting. But that was above forecasts. And revenue came in just about
in line with estimates. Still, investors weren`t sure what to make of
those results, causing the stock to pop and then drop in after hours
trading.

Sara Eisen has the one key takeaway in Nike`s report.

(BEGIN VIDEOTAPE)

SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Nike is feeling the
heat. The company seeing slowing growth in its key market, North America,
and fighting off fierce competition with discounts and a shift in strategy
to focus more on its direct to consumer business, where it sells directly
through its own stores and Websites instead of department stores and
others.

Results reflected the changing times, driven by a slowdown in the overall
athletic, apparel, and sneaker market and a resurgent Adidas, which just
stole the number two most popular brand spot in the United States from
Nike`s Jordan brand according to NPD Group.

Nike remains number one and is still the dominant player globally. Perhaps
that`s why it was able to flex some muscles, reporting a big profit beat on
controlling expenses, and showing strong performance abroad, especially in
markets like China were sales rose 12 percent.

But Nike`s stock has been lagging, Adidas and the broader market as
consumers opt for more fashionable athleisure over performance wear.

For Nike, it needs to get the cool factor back in order to excite consumers
and investors again.

For NIGHTLY BUSINESS REPORT, I`m Sara Eisen.

(END VIDEOTAPE)

HERERA: On Wall Street, the Dow recorded its first four-day losing streak
since June as investors have turned cautious. The Dow Jones Industrial
Average fell 11 points to 22284, the Nasdaq rose nine, and the S&P 500 was
up just a fraction.

The CEO of Equifax is out. The company announcing this morning that
Richard Smith is retiring in the wake of the massive breach that
potentially impacted 143 million Americans. And his departure comes days
before he was to appear on Capitol Hill.

Aditi Roy is on the story for us.

(BEGIN VIDEOTAPE)

ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Equifax
announced big executive changes starting from the top. The board of
directors appointed board member mark Fiedler to serve as chairman, and
seven-year veteran of Equifax, Paulino Do Rego Barros Jr. was named interim
CEO.

The reaction was swift. Hawaii Senator Brian Schatz, a member of the
Senate Banking Committee, said in a statement, a CEO walking out the door
just days before he is to appear before Congress is an abdication of his
responsibility.

Smith is scheduled to testify about a massive breach that affected up to
143 million Americans. An Equifax spokesperson says smith is scheduled to
testify before Congress, adding that company will fully cooperate with
Congress. Smith`s departure prompted Ohio Senator Sherrod Brown, a
Democrat on the Banking Committee, to ask SEC chair Jay Clayton a question
about it during a hearing on the SEC`s own cyber breach.

SEN. SHERROD BROWN (D), OHIO: Do you think it`s appropriate, Mr. Chair,
for the executives who ran the company during the massive breach that they
get to retire and keep their bonuses and stock awards?

JAY CLAYTON, SEC CHAIR: It would be inappropriate for me to comment on
that specific matter. Do I believe if executives have profited from a high
stock price that`s as a result of failure to disclose, other acts that are
clearly violations of our securities laws, should there be an ability to
get back those gains? Yes, I do.

ROY: In response, GOP Senator John Kennedy tweeted, was pleased to hear
Chairman Clayton isn`t ignoring the possible Equifax insider trading. The
American people need answers.

Equifax maintains the executives didn`t know about the breach when they
sold the shares.

Equifax has lost more than $4.5 billion in market cap since the breach was
made public. Consumer groups say Smith`s departure isn`t enough.

CHI CHI WU, NATIONAL CONSUMER LAW CENTER ATTORNEY: If you want another
credit card, you — or to refinance your mortgage, you`re still going to
have to deal with Equifax. And so, they don`t have that market incentive
to probably serve consumers. In fact, their customers are banks and
creditors and debt collectors who provide and use their information.

ROY (on camera): The company says it`s starting the search for a permanent
CEO. Meantime, interim CEO Mark Fiedler also issued a statement
apologizing for the breach and said Equifax has formed a special committee
of the board to focus on the hack.

For NIGHTLY BUSINESS REPORT, I`m Aditi Roy, San Francisco.

(END VIDEOTAPE)

HERERA: And a bit later in the program, we`ll take a look at how small
businesses were impacted by that breach at Equifax.

President Trump plans to visit Puerto Rico next week to survey the damage
from Hurricane Maria. Today, he said a lot of food, and water and other
supplies have been shipped to that island and that the federal government
is doing what it can.

(BEGIN VIDEO CLIP)

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: FEMA, our great first
responders, and all available federal resources, including the military,
are being marshaled to save lives, protect families, and begin a long and
very, very difficult restoration process. I have directed all relevant
departments and agencies to assist in the response and recovery effort.

(END VIDEO CLIP)

HERERA: One catastrophe modeling firm puts the damage from Hurricane Maria
at an estimated $40 billion to $85 billion in insured losses, most of those
in Puerto Rico.

College basketball found itself in the middle of a massive scandal today.
The FBI arrested 10 people on charges of fraud and corruption, including
coaches, managers, financial advisers, and representatives of sportswear
company Adidas. They are accused of making illicit payments on an attempt
to cash in on the big money athletics can potentially generate.

(BEGIN VIDEO CLIP)

JOON KIM, ACTING U.S. ATTORNEY: For the defendants charged today, the
madness of college basketball went well beyond the big dance in March.
Month after month, the defendants exploited the hoop dreams of student
athletes around the country, allegedly treating them as little more than
opportunities to enrich themselves through bribery and fraud schemes.

(END VIDEO CLIP)

HERERA: Among those charged were current and former coaching staff members
at Oklahoma State University, the University of Arizona, the University of
Southern California, and Auburn.

Eric Chemi is here with more.

Good to see you, Eric.

ERIC CHEMI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Good to see you, Sue.

HERERA: Lay out, if you could, exactly what this case is about.

CHEMI: OK. So, there`s actually two different things going on. You`ll
see those three documents that they filed. And in one set, it`s about
bribing coaches to get the college athletes to pick certain financial
advisers and agents when they leave college and go pro.

The other version is when they`re coming into college, paying the right
families to get them to pick certain schools because those schools are
sponsored by Adidas, let`s say.

HERERA: Why would the coaches risk doing something like this?

CHEMI: Well, coaches make a lot of money in college. Not just the head
coaches, which we know make millions of dollars, the assistant coaches can
make hundreds of thousands of dollars. And in a lot of cases, an assistant
coach`s job isn`t really to coach. You`re there to recruit. That is your
job. So, you`ve got to get these players in the door.

HERERA: That`s a good point.

What about these companies? Adidas is named in this particular suit for
some things that they are allegedly —

CHEMI: One of their employees is, but not Adidas the company.

HERERA: Not Adidas the company.

CHEMI: Right.

HERERA: But one of their employees.

What`s going to happen on their front? Why would an employee do that? It
endangers the brand. It endangers themselves.

CHEMI: So, this employee, he`s the head of global sports marketing for
basketball at Adidas. But he has a long track record as a high school
basketball coach in New York City. So, he`s well-known, knows the
athletes, knows the pipeline.

And if you`re Adidas, you`re doing $100 million deals for some of these
colleges, like Louisville and Miami. Those are two of the ten biggest
college deals in the country. So, you want the best kids going to these
schools that you`ve already given millions of dollars for because it gets
your name out there.

During March Madness, we know how big those ratings are.

HERERA: Oh, absolutely, even here in our studio.

CHEMI: Exactly.

HERERA: Thanks, Eric, very much — Eric Chemi.

Still ahead, the rise of the robots. Are you better off having machines
pick stocks and investor money?

(MUSIC)

HERERA: Don`t look now, but shares of General Motors are close to an all-
time high. It is the latest indication that Wall Street is warming up to
the game plan CEO Mary Barra has put in place to transform the country`s
largest automaker.

Phil LeBeau has more on why GM is finally connecting with investors.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): After
years of being seen as a symbol of Detroit and the perception American
automakers cannot adjust to a changing world, GM is now viewed by some as
the company to watch in a rapidly changing auto industry. In fact Deutsche
Bank says GM`s burgeoning mobility business is too big to ignore. That
mobility business includes cruise automation, which GM bought last year.

It`s now testing self-driving cars in California. Meanwhile, General
Motors is expanding its car share startup, Maven. And it still retains a
stake in Lyft, which is steadily cutting into Uber`s dominance in the
growing ride share industry. Throw in more than 7 million OnStar
subscribers, and you see why GM appears ready to shift with consumers when
they start renting or sharing cars and trucks instead of buying them.

Make no mistake, GM`s primary business of building and selling cars is
still where the company makes its profits, which remain strong.

(on camera): But Wall Street sees the real payoff for the auto industry
coming years from now, when electric and autonomous drive vehicles
dramatically change how we get around, and increasingly, investors believe
General Motors will be driving that change.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

HERERA: Higher ticket prices helped sales at Carnival and that`s where we
begin tonight`s “Market Focus”.

The world`s largest cruise operator also said its better than expected
results were helped by a rise in onboard spending. The company raised the
low end of its full year profit forecast and also noted the impact from
Hurricane Harvey would cut into its results. Carnival also said many of
its ships, though, are back in business following the storms.

(BEGIN VIDEO CLIP)

ARNOLD DONALD, CARNIVAL CEO: There are a number of ports that have been
temporarily impacted, five that people frequent often on cruise ships. But
there are over 40 ports that are up and operating. And, of course, our own
destinations also, we have private islands and other destinations
operating, and all the ports in Mexico. So, there`s plenty of places to
go. We have over 20 ships right now in the Caribbean sailing full.

(END VIDEO CLIP)

HERERA: Carnival shares rose almost 3 percent to $65.32.

Axovant Sciences says its experimental Alzheimer`s treatment was not
effective in improving patients` cognitive functions during a trial study.
The company plans to see if the drug works in treating other
neurodegenerative diseases. Axovant`s CEO said the stakes remain high in
finding an Alzheimer`s treatment, but that the company is up to the
challenge.

(BEGIN VIDEO CLIP)

DAVID HUNG, AXOVANT SCIENCES CEO: Over the last 14 years, not a single
drug has been approved for Alzheimer`s disease. In fact, there have been
more than 125 consecutive failed trials for Alzheimer`s disease. So, we
knew this was a risky place to be, but this is one of those areas, you just
can`t let fear of failure, of losing a battle, deter you from entering the
war.

(END VIDEO CLIP)

HERERA: But shares cratered nearly 74 percent to $6.33.

Hurricane Harvey dented same-store sales at Darden restaurants and the
company warned there may be more pain ahead. Despite reiterating its full
year outlook for earnings and revenue growth, the owner of Olive Garden
said the impact from Hurricane Irma could cause shares to disappoint. The
shares fell 6 percent to $77.71.

And American Express is raising its quarterly dividend 9 percent, 35 cents
a share. The yield on that stock is just under 1.5 percent. American
Express shares were slightly higher, ending the day at $88.69.

Technology is taking over the investment industry. And that means an
increasing number of decisions are being made by machines for both retail
investors as well as hedge funds.

Leslie Picker is in London at the third largest hedge fund in the world,
Mann Group.

(BEGIN VIDEOTAPE)

LESLIE PICKER, NIGHTLY BUSINESS REPORT CORRESPONDENT: It looks like your
typical guitar lesson, but it`s taking place inside Man Group, the world`s
third largest hedge fund, at 1:00 on a Tuesday. The student, he leads
investment strategy for their Quant Fund. The word quant means a hedge
fund strategy that is reliant on computers to trade.

Many of their employees are mathematicians building algorithms. To clear
their heads, they go to the music room.

Man Group invests about $40 billion as part of its quant strategy. They`re
one of the earliest adopters of quant starting 30 years ago.

Lately, there`s been a resurgence in quant. The amount of assets have more
than doubled since 2009 to $1 trillion, the top five hedge funds in the
world largely employ these computer-based strategies, and last year, when
non-quant funds were bleeding assets, quant funds brought in $13 billion.

Even retail money managers like BlackRock and State Street have been using
more technology for their products. That just adds to the competitive
pressure for a firm like Man. To get ahead, they`ve been focused on the
new frontier of quant, machine learning.

The firm`s chief investment officer says with machine learning, the
computers don`t have to be told how or what to trade. They just do it of
themselves.

SANDY RATTRAY, MAN GROUP CIO: A good example might be if you want machines
to buy on dips, then it`s sometimes quite hard to describe a dip perfectly,
but the machine learning will just look for patterns of what dips look like
and what happened next after a dip. It will be much less where we set the
strategy for it, much more that it learns from the data that you present.

PICKER: Rattray said the use of machine learning has helped deliver
returns above and beyond that of traditional quant. The firm has been
employing the strategy for three years now and partnered with University of
Oxford to stay ahead of the curve. Meanwhile, it`s clear that the
combination between technology and human investment will only become more
intertwined over time.

LUKE ELLIS, MAN GROUP CEO: A good computer will always beat a good human
at chess. But a good human with a good computer will beat a computer most
of the time at chess. It`s sort of the same even today in discretionary
spending. If you try to do everything manually, you are going to get
beaten by people who use quant technology to help their discretionary
process.

PICKER: But finding coders, recruiting them from the Googles and Facebooks
of the world can be a challenge, and having the best coders are critical
for quant`s returns.

It`s worth keeping them happy with a music lesson during the day.

For NIGHTLY BUSINESS REPORT, I`m Leslie Picker, London.

(END VIDEOTAPE)

HERERA: So, is it a good thing that technology is playing an even bigger
role in investing your money?

Ben Johnson joins us now to talk about it. He`s director of ETF research
at Morningstar.

Ben, good to see you. Welcome back.

BEN JOHNSON, DIRECTOR OF ETF RESEARCH, MORNINGSTAR: Sue, thanks for having
me.

HERERA: You think technology has been a positive for investors. Why?

JOHNSON: It`s absolutely been a positive, and it`s been an unmistakable
positive to the extent that advances an information and investment
technology have driven down costs for investors. What we know about
investing is that every penny that you`re able to save on fees and costs is
another penny that you`re able to reinvest and allow to compound to meet
your long term goals.

HERERA: Is that the only benefit that you see? I was fascinated by
Leslie`s report where the gentleman she was talking to from Man Group said
you don`t basically have to program the machine, the machine will learn
itself. That`s a little frightening to some of us out there, that the
machine can learn an algorithm all by itself.

JOHNSON: Well, I think these fears are probably overblown. In this battle
between man and machine, when it comes to security selection and portfolio
construction, the jury is still out as to whether machines or some sort of
partnership between man and machine will do any better than just flesh and
blood humans have for years. And what we`ve seen uniformly is that they`ve
tended to struggle, tended to struggle to get the better of their
benchmarks, the better of the markets at large.

So, again, that brings us back to what can we as investors control. We can
control our costs. We know knowing about the future, nor what it means for
markets. What we know, again, is that every penny we save is another penny
that will compound from here into the time that we take that money out of
our accounts to meet our long term goals.

HERERA: If you`re —

JOHNSON: So, man versus machine, honestly, who knows? There`s an arms
race going on, which if anything assures mutually assured destruction
amongst all of the various participants who are trying to outsmart one
another and out-program one another.

HERERA: As an individual investor, should you, do you think, actively seek
out an investment firm or money manager or hedge fund that utilizes quant
technology and technology to a large extent?

JOHNSON: I think individual investors should remain firmly focused on
those things that are a burden, those things they can control with a high
degree of certainty, which really almost begins and ends with cost and with
fees. And what we`ve seen without a doubt again is that over the course of
decades, advances in technology have driven down investment costs to the
point that now you can invest in a broadly diversified U.S. stock market
index fund for as little as $3 on a $10,000 investment in a given year.
That is inarguably a huge positive for all investors of all sizes.

HERERA: All right. We`ll leave it there, Ben. Thank you very much.

JOHNSON: Thank you.

HERERA: Ben Johnson with Morningstar.

Well, machines are also transforming Madison Avenue and redefining the
future of advertising.

Julia Boorstin reports tonight from Ad Week, where the technology that`s
changing marketing is front and center.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): No
technology will transform advertising in the next few years as much as
artificial intelligence, making marketing messages customized and
interactive.

JULIE, HOLOGRAM: Hi there.

BOORSTIN: Today, a startup Vntana unveiled a hologram designed to interact
with consumers in stores and malls.

Cofounder and CEO Ben Conway gave a sneak peek at the Hologram named Julie.

UNIDENTIFIED MALE: Julie, I`m hungry.

JULIE: That`s a good one. Give me one second.

If you`re looking for a sit down meal, head to the Italian restaurant on
cue for their signature pasta dish.

BOORSTIN: But not all artificial intelligence is so futuristic. Fifty
percent of all marketing leaders are already using AI for things like ad
targeting and placement. With marketers surveyed by Salesforce (ph) report
out in June, saying their AI use will grow more than 50 percent over the
next two years.

(on camera): But artificial intelligence certainly isn`t foolproof. Both
Facebook and Google have recently been in the news for the failures of AI
such as racist and anti-Semitic ad targeting terms for their failure to
identify and pull down violent and extremist content.

That`s why the companies are investing more in human oversight. Facebook
announced it`s doubling its team focused on election integrity.

TIM ARMSTRONG, OATH CEO: The technology, when you see issues like we`re
seeing with Facebook and Google, the technology has gotten ahead of the
human ability to be able to bring those back into what culture and society
wants.

BOORSTIN (voice-over): But Facebook and Google are also counting on AI to
better target their ads and drive growth. Thanks to AI driven ads on
Facebook`s Messenger and WhatsApp, one analyst estimates the two platforms
have a potential of $20 billion in revenue over the next three to five
years.

One example, just last week, Fandango released a ticket-buying messenger
bot for friends to plan trips to the movies and to tackle that all-
important brand safety issue, startup places ads next to appropriate
content on YouTube, using what it calls unsupervised and supervised AI
systems, which have people review videos to inform the algorithm. One
thing is for sure, with AI powering the likes of this dragon, the better
marketers can use their technology to understand who people are and what
they want, the more valuable and entertaining brand messages will be for
the consumers.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Advertising Week in New
York.

(END VIDEOTAPE)

HERERA: Coming up, a new worry for small business owners.

(MUSIC)

HERERA: In the wake of the Equifax`s breach, millions of Americans are
concerned that their personal information was stolen. Small business
owners are worried as well. And last week, a class action lawsuit was
brought on their behalf.

Andrea Day has our story.

(BEGIN VIDEOTAPE)

JASON DOSS, THE DOSS FIRM, LLC: Here in business there really is no system
to check whether or not it`s been a victim.

ANDREA DAY, NIGHTLY BUSINESS REPORT CORRESPONDENT: A new worry for small
businesses after the latest Equifax breach.

NEILL FEATHER, SITELOCK PRESIDENT: Small businesses remain kind of unaware
that they`re a frequent target and really viewed as low hanging fruit by
cyber criminals.

DAY: And unlike consumers, according to attorney Jason Doss, there`s no
way for a business to check to see if their data has been stolen. And the
free credit reports we all get come at a cost.

DOSS: Small businesses have really been up to this point sort of the
forgotten class of folks who have been harmed.

DAY: So, Doss filed a class action suit, hoping to protect America`s 28
million small businesses.

DOSS: Lines of credit could be opened in the name of the business. There
could be fake tax returns filed.

DAY: And he says most rely on loans based on the other owner`s
creditworthiness, that could now be at risk.

DOSS: We`re talking about Equifax who is sort of the responsible for
determining who gets loans and who doesn`t get loans.

DAY: Equifax tells us, quote: We cannot comment on pending litigation but
we remain focused on helping our customers, as well as their employees, and
consumers to navigate this situation.

FEATHER: Small businesses I think, they`re just now starting to realize
that this breach may impact them.

DAY: Neill Feather is president of SiteLock, a cybersecurity company
specializing in helping small businesses.

FEATHER: About 80 percent of attacks are targeted at companies with fewer
than 100 employees. What attackers will do is, instead of compromising one
large enterprise like an Equifax, they can get the same impact by attacking
1,000 or 10,000 unprotected small businesses than they would with a lot
more work to attack a well-protected enterprise.

DAY: And he says confidential info can wind up for sale right away on the
Dark Web.

FEATHER: About half the businesses that get breached will go out of
business in the first six months.

DAY (on camera): So, what do you do? If you`re a small business owner,
experts say the best way to protect yourself is to just cough up the cash
now and pay for those credit reports. Find out what`s happening as soon as
you can because being prepared will help protect you from any new attacks.

For NIGHTLY BUSINESS REPORT, I`m Andrea Day.

(END VIDEOTAPE)

HERERA: And that does it for NIGHTLY BUSINESS REPORT tonight. I`m Sue
Herera. Thanks for joining us. Have a great evening. We`ll see you right
back here tomorrow.

END

Nightly Business Report transcripts and video are available on-line post
broadcast at http://nbr.com. The program is transcribed by ASC Services II
Media, LLC. Updates may be posted at a later date. The views of our guests
and commentators are their own and do not necessarily represent the views
of Nightly Business Report, or CNBC, Inc. Information presented on Nightly
Business Report is not and should not be considered as investment advice.
(c) 2017 CNBC, Inc.

 

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